Tesco(TSCO.L)'s profit warning early this year affected the whole sector and share prices, which were already under pressure from declining consumer spending, fell further.

Murphy said that he and Kirrage looked closely at Sainsbury's(SBRY.L) and Tesco, but Morrisons looked the most attractive option for the fund, which features in Citywire Selection. 'The issues at Tesco caused concerns around the whole sector and there is always a chance that Tesco instigates a fightback through a price war in the UK. All three looked to be at attractive valuations, but Morrisons has a much stronger balance sheet,' he said.

'It also owns its own abattoirs and dairies, so has greater control over the value chain, and has done an extremely good job of allocating capital over the past three years.'

Trimming US pharmaceuticals, adding US tech

Elsewhere the managers have been trimming their overseas positions in pharmaceutical holdings such as Merck and Pfizer after a strong run, and are mulling additions in US tech firms in particular.

The duo tend to make the most of their 20% allocation to overseas stocks, and the sales have allowed them to look into topping up the weighting to near its operating limit again.

'We are actively looking to add more overseas names. We don't think stock markets are super cheap at the moment, but there are sectors such as consumer cyclicals that look very beaten up. In the UK that means stocks such as banks and housebuilders, while in the US it means tech.'

Tech firm Logica(LOG.L), which was the fund's largest overweight position at the end of June, will soon exit the fund and its acquisition by Canadian rival CGI will net the pair a healthy premium.

Overweight financials, shunning miners

Although Murphy and Kirrage continue to avoid miners and tobacco, the fund has almost 26% in financials compared with the benchmark's 20%. Most of the overweight is a result of holding insurers such as Legal & General (LGEN.L) and Old Mutual (OML.L), rather than banks.

Other than buying Morrisons, the pair's other UK cyclical additions in 2012 were in defence stocks Cobham(COB.L) and BAE(BAES.L) after the sector took another hit on fears over cuts in government spending.

Over five years to 10 August, the fund has returned 22.3% compared to 9.7% from the FTSE 350 Higher Yield index.

Citywire Selection verdict:

This fund’s deep value approach has led it to invest in some of the least loved areas of the market. It holds RBS, Barclays and Lloyds, but is completely avoiding the materials and tobacco industries. Last year was tough for the fund, and we started to look more closely at performance, but in the first half of 2012 the performance has been very strong. We will still continue to monitor its progress, but the turnaround is promising.